Knowing the basics of income tax is very important especially if you’ve just started working. You don’t need to be a tax expert to understand Income Tax you just need to know the basics.
#1. What is Income Tax?
An income tax (also called as corporate tax) is a tax imposed by the government on individuals or entities depending on the income amount.
It is an annual charge levied on both earned income (wages, salaries and commissions) and unearned income (dividends, interest, rents). Income Tax is charged to distribute wealth evenly among the population by using the tax for the development of the country.
#2. Who has to pay income tax?
Paying income tax in India depends mainly on your Residential status. If you are a Resident in India (according to Income-tax Act) you have to pay tax on your whole income (whether earned in India or outside India) and if you are a non-resident you have to pay tax on income earned in India only.
Any Indian citizen aged below 60 years has to pay income tax if their income exceeds 2.5 lakhs. If the individual is above 60 years of age and earns more than Rs.3 lakhs, he/she will also have to pay income tax.
#3. What are the sources of income that are taxed?
#4. What are the Income Tax Slabs?
Income tax slabs are the tax rates that apply to your earned income from all sources in a year.
This is the rate card for 2017-2018, which means the income earned from April 1st 2017-31st March 2018 will be taxed with the following rates:
|Income Slab||Tax Rate|
|Income up to Rs 2,50,000*||No tax|
|Income from Rs 2,50,000 – Rs 5,00,000||5%|
|Income from Rs 5,00,000 – 10,00,000||20%|
|Income more than Rs 10,00,000||30%|
|Surcharge: 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.
Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.
|Cess: 3% on total of income tax + surcharge.
Note that there is also a tax refund (rebate) of up to Rs.2,500 for a taxable income up to Rs. 3.5 lakhs.
#5. What are tax deductions?
These are the amounts the Income Tax department allows you to deduct or exempt from your income so that you can legally pay a lower tax.
Deductions are given by the tax department to help taxpayers lower their taxable income under section 80 and a maximum tax deduction of Rs.1.5 lakh can be claimed for a particular financial year.
#6. What is the procedure to file your income tax returns?
Income Tax Return is a document you file with the Internal Revenue Service or the State Tax Board reporting your income, profits, losses on your business and other deductions as well as details about your tax refund or tax liability. If you’re entitled to a tax refund, filing your return will help you get it back and if you have taxes due you can pay them.
Following are the steps by which one can file Income tax return.
Step 1: Login into your account on the Income Tax website, your user ID is your PAN number. Click on upload Form 16 which is in PDF format.
Step 2: Enter personal details-Name, DOB, bank details.
Step 3: Enter your salary details and also TDS.
Step 4: Enter deduction details. (Enter investment details under section 80C).
Step 5: Add details of taxes paid.
Step 6: E-file your return- if you see “no tax due” or “refund” and proceed for E-Filing. You will also get an acknowledgement number on next screen.
Step 7: Once the return is filed, E-verify your income tax return.
That was the basic guide for every beginner who has questions about Income Tax in India. If you have any more questions related to income tax comment and let us know.